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Earnings management, forecast guidance and the banking crisis

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  • Elena Beccalli
  • Saverio Bozzolan
  • Andrea Menini
  • Philip Molyneux

Abstract

This paper studies earnings management (EM) and forecast guidance (FG) activities of European banks between 2004 and 2008. Using 22,564 analyst forecasts for 55 banks, we find that the proportion of banks hitting or beating analyst consensus fell from 68.22% pre-crisis to 28.13% during the crisis. Banks enjoy higher cumulative adjusted returns (CARs) when they hit analyst consensus only in the crisis. EM is evident pre- but not during the crisis - it has no CAR effects. FG increases the probability of hitting benchmark earnings and during the crisis yields higher CARs. EM and FG act as complements in the crisis period.

Suggested Citation

  • Elena Beccalli & Saverio Bozzolan & Andrea Menini & Philip Molyneux, 2015. "Earnings management, forecast guidance and the banking crisis," The European Journal of Finance, Taylor & Francis Journals, vol. 21(3), pages 242-268, February.
    • Handle: RePEc:taf:eurjfi:v:21:y:2015:i:3:p:242-268
    DOI: 10.1080/1351847X.2013.809548
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    Cited by:

    1. Mubashar Tanveer & Mohsin Altaf & Zahid Ali Akbar & Uzma Nisar, 2022. "Influence of Advertising Intensity on Real Earnings Management: Evidence from Four Sectors of Pakistan," Journal of Economic Impact, Science Impact Publishers, vol. 4(1), pages 158-164.
    2. Michele Fabrizi & Elisabetta Ipino & Michel Magnan & Antonio Parbonetti, 2016. "Real Regulatory Capital Management and Dividend Payout: Evidence from Available-for-Sale Securities," CIRANO Working Papers 2016s-57, CIRANO.
    3. Shahzad, Khurram & Pouw, Thierry & Rubbaniy, Ghulame & El-Temtamy, Osama, 2018. "Audit quality during the global financial crisis: The investors’ perspective," Research in International Business and Finance, Elsevier, vol. 45(C), pages 94-105.
    4. García Osma, Beatriz & Mora, Araceli & Porcuna-Enguix, Luis, 2019. "Prudential supervisors’ independence and income smoothing in European banks," Journal of Banking & Finance, Elsevier, vol. 102(C), pages 156-176.

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